Borrowers urged to avoid costly fixed home loan revert rate trap
There’s been a substantial home loan rate shift in 2020 as interest rates have continued to fall and fixed home loans have emerged as the new low rate option for borrowers.
Mozo database figures show that, on average, fixed home loan rates are now significantly lower than variable rates, with the average 2-year fixed rate (2.35%) for an owner-occupier nearly 100 basis points lower than the average variable rate (3.31%).
In fact, following the latest Reserve Bank rate cut, many lenders have cut their fixed headline rates below the 2.00% mark for the first time.
While these low fixed offers will no doubt be welcomed by any borrowers who are happy to lock in a rate for the next few years, mortgage holders are being warned to watch out for the devil in the detail: revert rates.
What is a revert rate? It’s the variable rate borrowers are charged once the fixed rate period ends and, importantly, it tends to be a much higher rate.
And according to a recent Mozo analysis, the difference between fixed rates and revert rates can be substantial. Of the 2-year fixed rate loans being tracked in the Mozo database, the average revert rate was 3.49% and rates ranged as high as 5.10%.
“It’s clear lenders lure customers in with rock bottom fixed rates knowing they will make a bonanza in a couple of years time as most people won't bother to switch,” says Mozo Director, Kirsty Lamont.
“While low fixed rate offers might seem intoxicating, not many customers would be prepared for the fact they could be slugged with rates up to 5.10% when the fixed period ends.”
2-year fixed rate loans with the lowest total interest over 30 years^
Home loan | 2-year fixed rate | Revert rate | Total interest over 30 years |
---|---|---|---|
Well Home Loans - Well Balanced Fixed | 1.99% (2.17% comparison rate*) | 2.17% | $142,976 |
Tic:Toc - Fixed Home Loan | 1.89% (2.15% comparison rate*) | 2.19% | $143,366 |
FreedomLend - Fixed Home Loan | 2.31% (2.46% comparison rate*) | 2.19% | $147,105 |
Pacific Mortgage Group - Fixed Home Loan | 2.14% (2.24% comparison rate*) | 2.25% | $149,452 |
Illawarra Credit Union - The Works Fixed Home Loan Special Offer | 1.99% (2.93% comparison rate*) | 2.50% | $164,357 |
As the table above shows though, not all lenders charge revert rates which are significantly higher than the fixed rate.
But given that another analysis found that just 6% of mortgage holders had refinanced in the 12 months to June 2020, it’s likely that many Australians who do take up a fixed rate offer will be caught out in years to come when higher revert rates kick in.
As Lamont says, that inertia could end up costing borrowers a significant amount.
“The message is clear, if you don’t switch your loan when the fixed period ends you’re on a collision course with the revert rate ripoff. Failing to refinance your loan at the end of the fixed period could see your monthly repayments jump from $1,568 to $2,010 adding more than $88,997 over the life of the loan.”
RELATED: Home loan rates starting with ‘1’ pile up after RBA cut
Ready to compare a range of competitive fixed rate home loan offers? Check out the rates in the table below or head on over to the Mozo home loan comparison hub to compare more options for both owner occupiers and investors.
^Based on home loan products in the Mozo database available to owner-occupiers making principal and interest repayments on a loan of $400,000 loan with an LVR of 80% - accurate as of Nov 20, 2020. Assumes variable revert rate remains consistent over 30 years.
Compare fixed home loans - last updated 25 April 2024
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Mozo experts choice awards won:
- Exceptional Value Home Lender - 2024
Fixed Express Home Loan
Owner Occupier, Principal & Interest
interest rate
comparison rate
Initial monthly repayment5.99% p.a.
fixed 2 years6.14% p.a.Lock in a low 2 year fixed rate with the Mozo award winning Home Lender of the Year. Available for live-in borrowers with just a 10% deposit required. Free extra repayments (up to 20% in fixed period), free redraw and partial offset available. $10 monthly service fee.
CompareCompareFixed Express Home Loan
Lock in a low 2 year fixed rate with the Mozo award winning Home Lender of the Year. Available for live-in borrowers with just a 10% deposit required. Free extra repayments (up to 20% in fixed period), free redraw and partial offset available. $10 monthly service fee.
- interest rate
- 6.04% p.a.
fixed 3 years
- comparison rate
- 6.15% p.a.
- interest rate
- 6.04% p.a.
fixed 3 years
- comparison rate
- 6.15% p.a.
- upfront fees
- $134
- Ongoing fees
- $10.00 monthly
- Discharge Fee
- $350.00
- Extra repayments
- yes - up to 20% during the fixed period
- Redraw facility
- yes - free
- Offset account
- yes - partial only
- Maximum loan to value ratio
- 90.00%
- minimum borrowing amount
- $5,000
- maximum borrowing amount
- $3,000,000
- type of mortgage
- Fixed
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the Bendigo Bank Fixed Express Home Loan
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Basic Home Loan
Fixed, Owner Occupier, Principal & Interest, LVR 70-80%
interest rate
comparison rate
Initial monthly repayment6.09% p.a.
fixed 3 years6.19% p.a.Get a flexible loan structure with up to six loan accounts with different rate types. Make free extra repayments. Enjoy free redraw facility. No upfront or ongoing fees. Option to earn Qantas points.
CompareCompareBasic Home Loan
Get a flexible loan structure with up to six loan accounts with different rate types. Make free extra repayments. Enjoy free redraw facility. No upfront or ongoing fees. Option to earn Qantas points.
- interest rate
- 6.09% p.a.
fixed 3 years
- comparison rate
- 6.19% p.a.
- interest rate
- 6.09% p.a.
fixed 3 years
- comparison rate
- 6.19% p.a.
- upfront fees
- $350
- Ongoing fees
- $0.00
- Discharge Fee
- $400.00
- Extra repayments
- yes - up to $10,000 p.a.
- Redraw facility
- yes - free
- Offset account
- no
- Maximum loan to value ratio
- 80.00%
- minimum borrowing amount
- $150,000
- maximum borrowing amount
- $10,000,000
- type of mortgage
- Fixed
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the Macquarie Basic Home Loan
-
Mozo experts choice awards won:
- Exceptional Value Home Lender - 2024
Fixed Express Home Loan
Owner Occupier, Interest Only
interest rate
comparison rate
Initial monthly repayment6.49% p.a.
fixed 2 years6.39% p.a.CompareCompareFixed Express Home Loan
- interest rate
- 6.54% p.a.
fixed 3 years
- comparison rate
- 6.38% p.a.
- interest rate
- 6.54% p.a.
fixed 3 years
- comparison rate
- 6.38% p.a.
- upfront fees
- $134
- Ongoing fees
- $10.00 monthly
- Discharge Fee
- $350.00
- Extra repayments
- yes - up to 20% during the fixed period
- Redraw facility
- yes - free
- Offset account
- yes - partial only
- Maximum loan to value ratio
- 90.00%
- minimum borrowing amount
- $5,000
- maximum borrowing amount
- $3,000,000
- type of mortgage
- Fixed
- Repayment types
- Interest Only
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the Bendigo Bank Fixed Express Home Loan
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Flex Home Loan
Fixed, Owner Occupier, Principal & Interest, LVR 70-80%
interest rate
comparison rate
Initial monthly repayment5.99% p.a.
fixed 3 years6.41% p.a.Competitive fixed rate. Multiple offset accounts available. Borrowers can also make extra repayments. Redraw facility available. Simple online application process. 20% deposit required.
CompareCompareFlex Home Loan
Competitive fixed rate. Multiple offset accounts available. Borrowers can also make extra repayments. Redraw facility available. Simple online application process. 20% deposit required.
- interest rate
- 5.99% p.a.
fixed 3 years
- comparison rate
- 6.41% p.a.
- interest rate
- 5.99% p.a.
fixed 3 years
- comparison rate
- 6.41% p.a.
- upfront fees
- $250
- Ongoing fees
- $250.00 yearly
- Discharge Fee
- $300.00
- Extra repayments
- yes - free
- Redraw facility
- yes - free
- Offset account
- yes
- Maximum loan to value ratio
- 80.00%
- minimum borrowing amount
- -
- maximum borrowing amount
- -
- type of mortgage
- Fixed
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the ubank Flex Home Loan
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Fixed Rate Loan with Orange Advantage
Orange Advantage, Owner Occupiers, Principal & Interest, LVR <80%
interest rate
comparison rate
Initial monthly repayment6.09% p.a.
fixed 2 years6.16% p.a.Know exactly what your repayments will be, and you can fix your rate for up to 5 years. No monthly, annual fee or transaction fees. Free additional repayments (less than $10,000 p.a.). Valid for loans of $50,000 up to $2,000,000.
CompareCompareFixed Rate Loan with Orange Advantage
Know exactly what your repayments will be, and you can fix your rate for up to 5 years. No monthly, annual fee or transaction fees. Free additional repayments (less than $10,000 p.a.). Valid for loans of $50,000 up to $2,000,000.
- interest rate
- 5.99% p.a.
fixed 3 years
- comparison rate
- 6.12% p.a.
- interest rate
- 5.99% p.a.
fixed 3 years
- comparison rate
- 6.12% p.a.
- upfront fees
- $299
- Ongoing fees
- $0.00
- Discharge Fee
- $250.00
- Extra repayments
- yes - free up to $10,000 pa
- Redraw facility
- no
- Offset account
- no
- Maximum loan to value ratio
- 80.00%
- minimum borrowing amount
- $50,000
- maximum borrowing amount
- $2,000,000
- type of mortgage
- Fixed
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Fortnightly, Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the ING Fixed Rate Loan with Orange Advantage
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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.
** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.
^See information about the Mozo Experts Choice Home Loan Awards
Mozo provides general product information. We don't consider your personal objectives, financial situation or needs and we aren't recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice.
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